Buyers versus Sellers: Who Initiates Trades and When?

Tarun Chordia, Emory University of Atlanta

27th Mar 2012  11:30 am - Darlington Main Building: Conference Room 1

We study the relation between order imbalance and past returns and firm characteristics and test a number of hypothesis including the disposition effect, momentum and contrarian trading, taxloss selling and flight-to-quality hypothesis. These hypotheses make predictions about investors' buy or sell decisions, but previous studies that test these hypotheses use turnover data that combine both buyer and seller-initiated trades. We find that investors behave as contrarians over short horizons and as momentum traders over longer horizons. We find strong support for seasonal tax induced trading but little evidence of flight-to-quality.